Chapter 1:
Strategic Customer Relationship
Management Today
Overview
Topics discussed:

From the marketing to the customer concept

CRM and customer value

The concept of CRM

CRM from a business strategy perspective

Relevance of strategic CRM

Customer value management approach

Evolution and growth of CRM
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From the marketing to the customer concept
The marketing concept needs to make way for the customer concept:
Development of
information
technology and the
internet
Marketing is defined as a distinct
organizational culture, represented by a
fundamental shared set of believes and
values that put the customer at the center
of a firm’s strategic and operational thinking
(Deshpande and Webster, 1989)
Main function:
Addressing the needs of customer segments
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Time
The customer concept is the
conduct of all marketing activities
with the belief that the individual
customer is the central unit of
analysis and action.
Main function:
Meeting individual customer needs
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CRM

An Important part of CRM is to a) identify different types of customers and b) to develop
specific strategies to interact with them.

Examples of such specific strategies are:
 Better relationships with profitable customers
 Locating and enticing new customers that will be profitable
 Finding appropriate strategies to deal with unprofitable customers, including the
termination of relationships
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Link Between CRM and Customer Value
Customer Value: The economic value of the customer relationship to the firm – expressed
on the basis of contribution margin or net profit
CRM is the practice of analyzing and utilizing marketing databases and leveraging
communication technologies to determine corporate practices and methods that will
maximize the lifetime value of each individual customer to the firm
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Customer Value Based Approach to CRM
Using a customer value based approach to CRM yields several benefits:
 Decreased Costs
 Maximized Revenues
 Better profits and return on investment (ROI)
 Acquisition and retention of profitable customers
 Reactivation of dormant customers
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Conceptualizations of CRM

Functional level: focuses on technology
 Developing sales force automation in the sales function
 Developing campaign management in the marketing function

Customer facing front-end level: focuses on total customer experience
 Building a single-view of customers across contact channels
 Distributing customer intelligence to all customer-facing functions

Strategy level: focuses on customer satisfaction
 Freeing CRM from technological underpinnings
 Describing CRM as a process to implement customer centricity in the
market and to build shareholder value
 Understanding that knowledge about customers affects the entire organization
Within this context CRM will be defined from a business strategy perspective
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CRM from a business strategy perspective
CRM is the strategic process of selecting customers that a firm can most profitably serve and
shaping interactions between a company and these customers. The ultimate goal is to
optimize the current and future value of customers for the company.
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Key Components of CRM from a Business Strategy Perspective

Strategic process
 Activities are initiated from the top of the organization
 CRM activities span multiple organizational functions
 Continuous efforts towards a customer-centric organization

Selection
 Resource allocation is based on the economic value of customers

Interactions
 Exchange of information and goods between customers and companies evolve as a
function of past exchanges
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Key Components of CRM from a Business Strategy Perspective

Customers

Including end-users and intermediaries such as distributors and retailers

Greater fine-tuning of segmentation strategies to eventually target individual customers
with customized product offerings

Optimizing the current and future value of customers

Maximizing customer equity by maximizing profits over a series of transactions
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Relevance of CRM

Firms are facing changes with respect to:
 Consumers
 Marketplaces
 Technology
 Marketing functions
CRM is a response to these changes
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Changes with respect to Consumers
Behavioral changes
Demographic changes
and increasing consumer diversity

Aging populations, especially in
developed countries

Increasing diversity in term of
ethnicity

Increasing individualization
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
Time scarcity

Value consciousness and
intolerance for low service levels

Information availability and
technological aptitude

Decreased loyalty

Rise of convenience and self-service

Increased usage of social media
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Demographic Changes and Increasing Consumer Diversity

Aging populations, especially in developed countries
 Falling birth rates
 Median age increases drastically
 Thus, to know the needs of elderly becomes increasingly important

Increasing diversity in term of ethnicity
 Closer integration facilitates immigration
 Markets become more segmented

Increasing individualization
 Increasing number of working women
 Increasing number of single households as well as single parents
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Behavioral Changes

Time scarcity
 Activities compete for customers’ time
 Marketers should be wary of placing heavy time demands on consumers

Value consciousness and intolerance for low service levels
 Rising customer expectations
 Declining consumer satisfaction levels

Information availability and technological aptitude
 Customers become more knowledgeable in making purchase decisions
 Increasing level of comparisons across providers and transactions
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Value consciousness and intolerance for low service levels
Decreasing/stagnating overall satisfaction among U.S. consumers
Source: theacsi.org
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Behavioral Changes

Increased use of social media
 Enables companies to gain insights and to receive prompt feedback
 Online word of mouth becomes increasingly important

Decreased loyalty
 Diversification of holdings across service providers even within the same household

Need for convenience and the rise of self service
Meeting consumers needs becomes the major challenge for companies.
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Decreasing Loyalty
Are you planning to switch your phone operator in 2011? (in %)
35
30
25

20
Number of
respondents
15
10
5
0
Absolutely not
planning to switch
Not planning to switch
Planning to switch
Absolutely planning to
switch
Source: Infas, 2010
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Changes with respect to the Marketplace

More intense competition between firms for customers

Fragmentation of markets

Diminishing product-quality differentiation
To maintain market share, companies need to realign their
business strategy to become customer-centric
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Changes with respect to Data Storage Technology

Better technology, cheaper and larger storage units

Huge increase in demand for data storage
Better information about customer behavior and attitudes
Better prediction of customer buying behavior
Too much data can lead to misapplication and wrong analysis
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Changes with respect to the Marketing Function

Media dilution and channel multiplication
 Proliferation of communication media focused on the customer
 Direct-to-consumer channels - email, telephone
 Interactive media - internet, interactive TV etc
 Reduced need for techniques focused on price alone due to
 Availability of new data collection and communication tools
 Marketing processes such as loyalty programs
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Media dilution and channel multiplication
Daily media usage behavior in Germany
Daily usage in minutes
300
250
200
TV
150
Radio
100
Internet
50
Hybrid/smart TV household penetration in
Germany in %
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
0
Hybrid/smart TV
household penetration
in Germany
Source: ARD, ZDF, Onlinestudie 2010 & Goldmedia 2010
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Changes with respect to the Marketing Function

Decreasing marketing efficiency and effectiveness
 Lower efficiency and effectiveness due to
 Prior focus on price and short-term transactions
 Proliferation of new contact channels
 Increased or flat cost of contact
 Decreased customer response
 Reduced value for advertising in any medium
Pressure on the marketing function
Marketing in danger of being restricted to advertising and media planning
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Implications of Changes in the Business Environment

Greater demand to learn about
 Customer preferences
 Product and service customization

Focus on customer-centric instead of product-centric strategies

Marketers need a management approach that
 Realizes increasing customer heterogeneity
 Addresses marketing accountability
 Puts available data successfully into practice
 Uses customer profitability as a key objective function
Customer value management
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Benefits of the Customer Value Management Approach
A successful data-based CRM system, with customer value as its driving metric,
empowers a company to perform ten actions leading to a strategic advantage:
 Integrate and consolidate customer information
 Provide consolidation information across all channels
 Manage customer cases
 Personalization
 Automatically and manually generated new sales opportunities
 Generate and manage campaigns
 Yield faster and more accurate follow-up
 Manage all business processes
 Give top managers a detailed and accurate picture
 Instantly react to changing market environments
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Evolution and Growth of CRM
Timeline of the CRM evolution
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Evolution and Growth of CRM
First generation –
functional level
 CRM
developed as
two independent
product offerings
 Sales force
automation (SFA)
addressing
presales
functions
 Customer
service and
support (CSS)
addressing aftersales functions
Second generation
– customer facing
front- end level
Third generation –
strategic level
Fourth generation
– agile and flexible
strategic CRM
 Attempt to
integrate different
independent
subsystems
 Increasing
disillusionment
with CRM
technology
 CRM O
organizations
learned from
experience
 Integration of
front-end
customers with
back-end
systems
 Integration of
Internet
technology
helped to boost
CRM
 Agile, flexibility
and low costs are
key
 Customer
empowerment
becomes a
bigger topic
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Evolution and Growth of CRM
Integration of front-end customers with back-end systems
CRM
ERP
Finance
Distribution
Service and
Support
Order
Processing
Customer
Manufacturing
Sales
R&D
Marketing
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Further Growth of the CRM Industry

The CRM industry represent a fast growing sector

CRM has been driven by a shift from transactional to relationship-based markets

Five further factors that are responsible for CRM’s forward movement:
 Growing proof of profitable impacts of good customer relationships
 Improved marketing communication effectiveness
 IT vendors and associated change management consultancies
 Falling costs of data capture storage
 Customer value management
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Summary

From a strategic perspective, CRM is the process of selecting the customers a firm can
most profitably serve and shaping the interactions between a company and these
individual customers

Assessing Customer Value is critical to CRM

Rapid changes are taking place in the environment in which firms operate with respect to
customers, market places, technology, and marketing functions

These changes have driven the marketplace to become relationship-based and
customer-centric

CRM’s goal is to optimize the current and future value of the customers for the company
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